182 F.3d 121 (2nd Cir.

1999)

ANGEL HERNANDEZ,
Plaintiff-Appellant,
v.
CONRIV REALTY ASSOCIATES,
Defendant-Appellee.
Docket No. 98-7900
August Term, 1998

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT
Argued: May 6, 1999
Decided: June 18, 1999

Appeal from a judgment of the United States District Court for the
Southern District of New York (Whitman Knapp, Judge) dismissing
plaintiff's complaint with prejudice as a procedural sanction. On a
previous appeal, we (1) determined that the case had been removed
improperly from state court because federal subject matter jurisdiction did
not exist, (2) held that despite the absence of subject matter jurisdiction,
the district court's orders dismissing the case with prejudice and requiring
plaintiff to pay defendant's expenses, both of which were based on
procedural violations, "create[d] no constitutional concerns," and (3)
vacated the orders and remanded for reconsideration in light of the
conclusion that removal had been improper. Hernandez v. Conriv Realty
Assocs., 116 F.3d 35, 40-41 (2d Cir. 1997). On remand, the district court
again ordered dismissal with prejudice but declined to require payment of
expenses. In this second appeal, we revisit our earlier determination and
now hold that where federal subject matter jurisdiction does not exist,
federal courts do not have the power to dismiss with prejudice, even as a
procedural sanction.
Judgment vacated, and cause remanded to the district court with
instructions to remand to the state court.
ANGEL HERNANDEZ, New York, NY, pro se.
ROBERT A. SPARER, Clifton Budd & DeMaria, LLP, New York, NY,

for Defendant-Appellee.
Before: OAKES, CABRANES, and SACK, Circuit Judges.
JOSE A. CABRANES, Circuit Judge:

This appeal presents-for the second time-a judgment dismissing the plaintiff's
complaint with prejudice in a case where federal subject matter jurisdiction
does not exist. We previously held that "no constitutional concerns" were
created by the district court's entry of such an order as a procedural sanction,
but we nevertheless remanded to the district court for reconsideration.
Hernandez v. Conriv Realty Assocs., 116 F.3d 35, 40-41 (2d Cir. 1997). On
remand, the district court again ordered dismissal with prejudice and entered
judgment accordingly. In this second appeal, we revisit our earlier
determination and now hold that where federal subject matter jurisdiction does
not exist, federal courts do not have the power to dismiss with prejudice, even
as a procedural sanction.1
I.

Plaintiff originally filed this action in April 1995 in New York State Supreme
Court, and defendant subsequently removed the case to the district court. In a
memorandum and order dated February 28, 1996, the district court dismissed
the complaint with prejudice and ordered plaintiff to pay defendant's expenses
associated with a pretrial conference at which plaintiff did not appear. The
order was based on plaintiff's failure to respond to discovery requests, and on
his subsequent failure, following his attorney's withdrawal, to comply with the
court's order to retain new counsel by a date certain or proceed pro se and
appear in that capacity at the conference.

On plaintiff's first appeal, we held sua sponte that removal had been improper
because federal subject matter jurisdiction did not exist. See Hernandez, 116
F.3d at 40. Our original opinion stated that the district court's order dismissing
the case and imposing monetary sanctions therefore would be vacated and the
case remanded to the district court with instructions to remand to the state
court. Three weeks later, however, we amended the opinion to state that,
because the district court's orders imposed "procedural sanction[s]" that did not
involve any "assessment of the legal merits of Hernandez's claims," the order
"create[d] no constitutional concerns." See id. at 41 (internal quotation marks
omitted). Although we held that the court had the power to dismiss with
prejudice and impose monetary sanctions, we vacated the court's order and

remanded for reconsideration in light of our determination that the case had
been improperly removed. See id. at 41.
4

On remand, the district court again ordered dismissal with prejudice, but
declined to require plaintiff to pay defendant's expenses. A final judgment was
entered dismissing the case with prejudice, and this second appeal followed.
II.

As noted above, we held previously that an order of dismissal without

prejudice as a procedural sanction "creates no constitutional concerns" where
subject matter jurisdiction does not exist. Hernandez, 116 F.3d at 41. In
reaching that conclusion, we relied on Willy v. Coastal Corp., 503 U.S. 131
(1992), in which the Supreme Court held that an imposition of monetary
sanctions pursuant to Fed. R. Civ. P. 11 remained valid despite a subsequent
determination that federal subject matter jurisdiction did not exist. See id. at
138. The Supreme Court stated that the order "d[id] not signify a district court's
assessment of the legal merits of" the case, and "therefore d[id] not raise the
issue of a district court adjudicating the merits of a 'case or controversy' over
which it lacks jurisdiction." Id. (internal quotation marks omitted). We
concluded that because a dismissal with prejudice as a procedural sanction also
does not signify a court's assessment of the merits of the case, such an order
also creates no constitutional concerns.2

After further consideration of the issue, we now conclude that where a court
lacks subject matter jurisdiction, it also lacks the power to dismiss with
prejudice. It is true that such an order, if imposed as a procedural sanction, does
not involve an assessment of the merits of the case. Nevertheless, we believe
that Article III's limits on federal jurisdiction are designed not only to prevent
federal courts from assessing the merits of certain disputes, but also to prevent
federal courts from interfering-through such assessments or otherwise-with the
jurisdiction of state courts over certain cases, such as this one, that do not
implicate federal interests. A dismissal with prejudice interferes with state court
jurisdiction because it "has the effect of a final adjudication on the merits
favorable to [the] defendant," and therefore has res judicata effect-that is, it
"bars future suits brought by [the] plaintiff upon the same cause of action,"
Samuels v. Northern Telecom, Inc., 942 F.2d 834, 836 (2d Cir. 1991) (internal
quotation marks omitted); see also Fed. R. Civ. P. 41(b) (providing that unless
the district court specifies otherwise, a dismissal ordered as a procedural
sanction "operates as an adjudication upon the merits"), even in a court that
does have subject matter jurisdiction, such as the state court from which this
case was improperly removed. For this reason, it is our view that Article III

deprives federal courts of the power to dismiss a case with prejudice where
federal subject matter jurisdiction does not exist.3
7

Accordingly, we vacate the judgment of the district court dismissing the case
with prejudice, and remand the cause to the district court. We instruct the
district court, in turn, to enter an order to remand to the state court. See 28
U.S.C. 1447(c) ("If at any time before final judgment it appears that the
district court lacks subject matter jurisdiction, the case shall be remanded.").
III.

In sum, we hold that, because the district court lacked subject matter
jurisdiction, it did not have the power to dismiss the complaint with prejudice.
The judgment is vacated and the cause remanded to the district court with
instructions to remand to the state court.

Notes:
1

Because of the conflict between this holding and the precedent established by
our previous decision, this opinion has been circulated to all of the active judges
of the Court, none of whom objects to this holding.

We noted that the Ninth Circuit had relied on Willy to reach the same
conclusion. See In re Exxon Valdez, 102 F.3d 429, 431 (9th Cir. 1996). We
now note that after our earlier decision, the Third Circuit held to the contrary,
explicitly disagreeing with both Hernandez and Exxon Valdez. See In re
Orthopedic "Bone Screw" Prods. Liability Litig., 132 F.3d 152, 156-57 & n.4
(3d Cir. 1997).

Although we hold that federal courts lack the power to dismiss a case with
prejudice where subject matter jurisdiction does not exist, we note that, in the
interest of finality, collateral attacks on subject matter jurisdiction are not
permitted. See Willy, 503 U.S. at 137. Accordingly, a party cannot seek to
avoid the res judicata effect of an earlier judgment by arguing that the court
entering the judgment had lacked subject matter jurisdiction over the case.